4) Supplementary Remarks
“The original source of the money for II is v + s of the gold industry I exchanged for a part of IIc. The v + s of the producer of gold does not enter into II only to the extent that he accumulates surplus-value or converts it into means of production I, i.e., to the extent that he expands his production. On the other hand, since the accumulation of money on the part of the gold producer himself leads ultimately to reproduction on an extended scale, a portion of the surplus-value of gold production not spent as revenue passes as additional variable capital of the gold producer into II, promotes here the formation of new hoards or supplies new means with which to buy from I without selling to it direct. From the money derived from this I(v + s) of the production of gold that portion of the gold must be deducted which certain branches of production II need as raw material, etc., in short as an element for the replacement of their constant capital.” (p 526)
In other words, a portion of gold production goes towards production of jewellery etc., and, therefore, does not become money. Of the rest, a proportion, equal to c, has to be exchanged with other Department 1 capitals to buy means of production to replace those used up. Only the gold paid directly to gold workers, v, and the gold used directly as revenue by gold capitalists, is available to act as money-revenue to buy consumer goods from Department 2, and, thereby, becomes part of the money hoard of Department 2 capital, available for use as money-capital to advance for its expansion.
In fact, as Marx sets out, in the Contribution To The Critique of Political Economy, once central banks have control of money supply, and notes and coins circulate as money tokens, the central bank determines how much money is required to circulate commodities, and effect payments. It increases or reduces the supply of notes and coins accordingly. But, with fractional reserve banking, the commercial banks themselves create bank money in the form of deposits. Capitalists seeking to expand their capital by accumulating surplus value can simply obtain the money they require via an exchange of bank deposits.
As Marx points out, this only obscures the underlying relations, which are best understood in terms of money based on precious metals. The more concrete analysis of actual relations, and the role of credit and bank finance is left to Volume III.
“An element for the preliminary formation of hoards — for the purpose of future extended reproduction — exists in the exchange between I and II: for I only if part of Is is sold one-sidedly, without a balancing purchase, to II and serves there as additional constant capital II; for II, when the same is the case on the part of I for additional variable capital; furthermore, if a part of the surplus-value spent by I as revenue is not covered by IIc, hence a part of IIs is bought with it and thus converted into money. If I(v + s/x) is greater than IIc, then IIc need not for its simple reproduction replace in commodities from I what I consumed out of IIs. The question arises to what extent hoarding can take place within the sphere of exchange of capitalists II among themselves, an exchange which can consist only of a mutual exchange of IIs.” (p 526)
So, if Department 1 sells additional constant capital to Department 2, but does not buy a corresponding amount of consumer goods, from Department 2, the difference must exist as a money hoard in the hands of Department 1 capitalists. That could be the case, for example, where a new boom occurs, or there is a process of industrialisation occurring.
In such conditions, Department 2 capitalists as a mass, including new firms just established, will need to buy lots of fixed capital from Department 1. They will require to buy all of their initial stocks of materials to be processed, and so on. The sum total of all these large purchases will be considerably more than the flow of funds back in the other direction, and necessarily so, in the case of fixed capital, that only gives up its value gradually. We have seen this many times. Whenever a new boom arises, Department 1 producers such as OPEC, miners, agricultural producers, steel producers etc., see their revenues rise rapidly ahead, both of any capacity to increase investment, or unproductive consumption. So, large money hoards are built up, which today can be seen in the shape of sovereign wealth funds of many economies, based heavily on Department 1 production.
Similarly, money hoards are built up in Department 2, if it one sidedly sells to Department 1. For example, Department 1 may accumulate capital, and employ additional labour-power, which thereby causes an increase in demand for Department 2 consumer goods, i.e. more Department 1 workers means more wages are spent on consumer goods. Department 2 sells these goods, but does not buy additional constant capital of the same amount.
That could happen because the additional demand is met out of existing stocks; because Department 2 makes its fixed capital last longer; because it improves the efficiency of its use of fixed capital and/or material etc. For example, users of oil have improved the efficiency of its use tremendously, whether it is in petro-chemicals, or as a fuel. So, now, when GDP rises, the demand for oil rises by only a fraction of what it did 20-30 years ago. Similar means by which the demand for Department 1 goods may not rise proportionate to demand for Department 2 goods, include the use of alternative types of materials, or simply technological advancement. For example, demand for telephones has risen hugely, but much less material is required for the production of modern mobile phones than for the phones of 20-30 years ago.
“The question arises to what extent hoarding can take place within the sphere of exchange of capitalists II among themselves, an exchange which can consist only of a mutual exchange of IIs. We know that direct accumulation takes place within II by the direct conversion of a portion of II s into variable capital (just as in I a portion of Is is directly converted into constant capital). In the various age categories of accumulation within the various lines of business of II, and for the individual capitalists in each line of business, the matter is explained mutatis mutandis in the same way as in I. Some are still in the stage of hoarding, and sell without buying; the others are on the point of actual expansion of reproduction, and buy without selling. The additional variable money-capital is, true enough, first invested in additional labour-power, but this buys means of subsistence from the hoarding owners of the additional articles of consumption entering into the consumption of the labourers. From these owners, pro rata to their hoard formation, the money does not return to its point of departure. They hoard it.” (p 526-7)
In other words, just as was seen with Department 1, some capitals are in the process of hoarding money. That can be because some of that hoard is the depreciation fund for fixed capital, or it can be a hoard of money capital not yet large enough to be productively invested.
On the other hand there are capitals that are replacing their fixed capital, and also those that have sufficient resources to advance as additional productive capital. The fact that some capitals are buying but not selling, whilst other are selling but not buying, enables money hoards to be developed, which are then available to be used to replace and extend fixed capital and productive-capital. That relation exists both within each department and between Department 1 and 2.
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